The number of first-time home buyers fell to 33% of all buyers in 2014, down 5% from 2013 to reach the lowest level in three decades, according to The National Association of Realtors' (NAR) Profile of Home Buyers and Sellers.
The number of first-time home buyers reached its lowest point in 1987, when they represented about 30% of all sales, according to the report, which is based on the results of a national survey. This year, NAR received 6,572 responses from lenders and consumers.
Historically, first-time home buyers have represented about 40% of all sales; however, a poor job market, a lack of wage growth, student loan debt, rising home prices, tight mortgage credit and a general lack of confidence in the economy is causing many young people to postpone homeownership.
‘Rising rents and repaying student loan debt makes saving for a down payment more difficult, especially for young adults who've experienced limited job prospects and flat wage growth since entering the workforce,’ says Lawrence Yun, chief economist for NAR, in a release. ‘Adding more bumps in the road is that those finally in a position to buy have had to overcome low inventory levels in their price range, as well as competition from investors, tight credit conditions and high mortgage insurance premiums.’
However, an improving economy, the loosening of mortgage credit and increased inventory leading to lower prices should help bring more first-time buyers back into the market in 2015, Yun says.
‘Stronger job growth should eventually support higher wages, but nearly half of first-time buyers in this year's survey said the mortgage application and approval process was much more or somewhat more difficult than expected,’ Yun says. ‘Less stringent credit standards and mortgage insurance premiums commensurate with current buyer risk profiles are needed to boost first-time buyer participation, especially with interest rates likely rising in upcoming years.’Â
The survey reveals that the median age of first-time buyers was 31, unchanged from the last two years, and the median income was $68,300 – up from $67,400 in 2013. The typical first-time buyer purchased a 1,570 square-foot home costing $169,000.
Meanwhile, the typical repeat buyer was 53 years old and earned $95,000. Repeat buyers purchased a median 2,030 square-foot home costing $240,000.
When asked about the primary reason for purchasing, 53% of first-time buyers cited a desire to own a home of their own. For repeat buyers, 12% had a job-related move, 11% wanted a home in a better area, and another 10% said they wanted a larger home.
According to the survey, 79% of recent buyers said their home is a good investment, and 40% believe it's better than stocks.
Nearly nine out of 10 buyers (88%) financed their home purchase. Younger buyers were more likely to finance (97%) compared to buyers aged 65 years and older (64%).
The median down payment ranged from 6% for first-time buyers to 13% for repeat buyers. Among 23% of first-time buyers who said saving for a down payment was difficult, more than half (57%) said student loans delayed saving, up from 54% a year ago.
About 81% of first-time buyers said they tapped into their savings to come up with their down payment. About 26% used cash they received as a gift from a friend or relative – most likely their parents – and 6% received a loan from a relative or friend. About 10% of buyers sold stocks or bonds and tapped into a 401(k) fund to come up with a down payment.
About 93% of first-time buyers chose a fixed-rate mortgage, with 35% financing their purchase with a low-down-payment Federal Housing Administration (FHA)-backed mortgage- down from 39% in 2013. About 9% used the Veterans Affairs loan program with no down-payment requirements.
‘FHA premiums are too high in relation to default rates and have likely dissuaded some prospective first-time buyers from entering the market,’ says Yun. ‘To put it in perspective, 56 percent of first-time buyers used a FHA loan in 2010. The current high mortgage insurance added to their monthly payment is likely causing some young adults to forgo taking out a loan.’Â Â
The survey additionally found that a majority of buyers (92%) search for homes online and then purchase their home through a real estate agent (87%).
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